Sabah Aslam
AS the world is gasping for survival in a fight against Covid-19, countries are taking maximum measures to contain its spread. While combating Covid-19 outbreak, the financial muscle of the countries is also under severe stretch. The Central Asia is no different, specifically Uzbekistan. The country has taken strict measures to enforce a complete lockdown which has proved to be beneficial in terms of containing the number of cases but comes at the cost of economic crisis. The Government of Uzbekistan is thus opting for increasing the external debts. The State Budget of the Republic of Uzbekistan for 2020 was adopted in December last year. According to Article 16 of the Law for 2020, the maximum total amount of external borrowing attracted on behalf of or under the guarantee of the Republic of Uzbekistan is $ 4 billion. Article 17 of the same law approved the maximum amount of development of attracted external borrowings for the implementation of state targeted programmes and repayable from the State budget for 1.5 billion dollars.
According to information from the Ministry of Finance, the external debt raised on behalf of the government or under its guarantee as of January 1, 2020, is almost $ 15.6 billion and amounts to 27.0 percent of GDP. Of this amount, $ 7.5 billion falls on international financial institutions, $ 7.1 billion on financial institutions in foreign countries, and $ 1.0 billion on international sovereign bonds. External debt mainly falls on the following industries: fuel and energy sector – $ 4.5 billion; transport industry and logistics – $ 2.1 billion; agricultural sector – $ 1.9 billion; housing and utilities – $ 1.8 billion; chemical industry – $ 0.9 billion; education and healthcare – $ 0.6 billion; bank deposits – $ 0.9 billion; other areas – $ 2.9 billion. In 2019, external debt grew by $ 5.7 billion, or by 57.8 percent. Of this amount, $ 2.5 billion were borrowed by the government and $ 2.2 billion under the guarantee of the government. The total public debt, including external and internal, last year amounted to $ 17.6 billion. Despite the relatively rapid growth in external debt observed in recent years, it remains low in comparison with indicators from other countries. Thus, Fitch Ratings in its report published in April of this year, notes that public debt of 30.5 percent/ 30.5 percent public debt remains below the current median for BB (46 percent of GDP). At the same time, the external liquidity indicator, projected at 410 percent in 2020, is one of the strongest among comparable issuers in the BB category. Currently, the relevant ministries and departments are working to implement the Decree of the President of the Republic of Uzbekistan Shavkat Mirziyoyev dated April 22, 2020 No. PP-4691 called, “On measures to attract external assistance funds to support the population, budget, basic infrastructure and business entities during the period of Coronavirus infection”.
This Decree states that preliminary agreements have been reached with international financial institutions on the provision of soft long-term loans in the amount of $ 3 billion and € 150 million. It is noteworthy that the present amount is below the budget limit for total external borrowing in the amount of $ 4 billion. Attracted external borrowing is planned to be directed to the following goals: 1. Strengthening the healthcare system ($ 277.5 million dollars); 2. Support for entrepreneurship and the banking system ($ 700 million); 3. Support for the state budget and the Anti-Crisis Fund under the Ministry of Finance ($ 1.7 billion and € 150 million); 4. Ensuring the smooth functioning of utilities and energy enterprises ($ 300 million). It is evident that the issues of attracting external borrowing should be considered in the context of the current situation and measures taken to address the effects of coronavirus pandemic. It is known that in the country as a result of quarantine restrictions on the movement of people, the volumes of production and provision of services at 196,000 enterprises have significantly decreased. Accordingly, tax revenues decreased by 30-40 percent in a number of regions, and in some areas and cities by more than 50 percent. There were risks of non-repayment of loans in amount of 3.6 trillion. Uzbekistani Som (UZS): By foreign trade enterprises, 650 billion UZS in the transport and logistics sector, 180 billion UZS in the field of catering, 90 billion UZS in the hotel business. In response to the challenges associated with the spread of the pandemic, în 19 March, the President signed a decree “On priority measures to mitigate the negative impact on the economy of the Coronavirus pandemic and global crisis phenomena.”
In accordance with the decree, an Anti-Crisis Fund of 10 trillion UZS was created in the main areas of use of which are: financing of measures to combat the spread of Coronavirus infection; supporting entrepreneurship and employment; expansion of social support for the population; ensuring the sustainable functioning of sectors of the economy. In the nearly two-month period since the signs of the spread of the pandemic were discovered, enormous practical work was done to mitigate its impact on the economy and welfare of the population. The volume of government spending was significantly affected by the natural disaster that occurred on the night of April 28, the main blow of which fell on the Alat and Karakul districts of Bukhara region, as well as a breakthrough in the Sardoba reservoir in Syrdarya region on May 1. In Bukhara region, the disaster-damaged more than 38,000 houses, as well as 847 social facilities and crops throughout the region. About 90,000 people from Syrdarya region were evacuated to safe areas from 24 neighbourhoods of Sardoba, Oqoltin and Mirzaobod districts. In both areas, significant damage was done to agriculture, manufacturing, services and infrastructure. Although Fitch Ratings indicated presence of currency risks associated with servicing external debt, the timely transition to inflation targeting, launched by the Central Bank this year with the goal of gradually reducing inflation to 5% in 2023, allows this risk to be reduced to an acceptable level. It is expected that the risk will also be primarily offset by measures already taken to support state-owned enterprises in manufacturing sectors, support entrepreneurship and employment, and macroeconomic stabilization. The Uzbek government, without any doubt, is trying to make the most of the situation in hand, yet there is a long way to go, especially in times when the post-Covid-19 situation becomes more apparent.
—The writer is Executive Director, Islamabad Institute of Conflict Resolution (IICR).
